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Asset Protection with a Limited Liability Company
"LLCs may become the business entity of choice for those interested in having only one level of tax applied to their profits."
| In previous reports, I've made frequent mention of family limited partnerships (FLP) as asset
protection devices. However, some commentators claim that a newer form
of entity may offer greater asset protection benefits, with a number of
other advantages over FLPs.
The Limited Liability Company (LLC) is a relatively new form of legal entity that combines most of the best features of a corporation a limited partnership and a general partnership. According to the May/June, 1996 issue of the Limited Liability Company Reporter, all of the 50 states have adopted enabling laws.
LLC vs. FLPAny partnership losses of a limited partner may not be
deductible by a limited partner because of the passive activity loss tax
rules. However, if a member of a LLC is an "active participant" in the
LLC, any losses should be deductible by the member - but that's likely
to be an issue that will vary with the facts for each member of a LLC.
(It took the IRS 200 pages to define "active participation" in a
business entity, but the practical distinction is whether you devote
more than 500 hours a year as a manager or member of the entity.) Like the FLP, the creditor of a member of a LLC is only
allowed to attach future distributions to the specific member (a
charging order) and is not permitted to attach the assets of the LLC. Also, like the FLP, the charging order does not protect the
assets of the LLC from claims by judgment creditors of the LLC who have
been injured by the acts of employees or managing members of the LLC. A major difference between the FLP and LLC is that there are
foreign jurisdictions (like Nevis) where you can establish a LLC to
secure the benefits of a more hospitable legal jurisdiction and the
protection of a LLC. The FLP is not available in most other countries.
Further details about protecting your assets from future lawsuits with limited liability companies are available in our subscriber's web site.
NOTICE: This Information is intended only for educational purposes and may be regarded as controversial by some legal experts. Readers should consult with a qualified professional who is familiar with their specific financial and tax circumstances before adopting any ideas that are discussed in this article. About the author: Vernon
Jacobs is a CPA/CLU who works as a tax author and consultant.
He can be reached by phone fax at (913) 362-9667.
Offshore Press -- Your objective resource for global financial planning
Sponsored by Offshore Press, Inc. Copyright, 2002, All rights reserved. Offshore Press, Inc., Box 8194, Prairie Village, KS 66208. (913) 362-9667. Email to Offshore Press Vernon K. Jacobs, Webauthor |